Trickle-down economics
alarming threshold of 0.4 in 1993. Worringly, this was the first ever time the US Gini index went on an uptrend since the data was first recorded in 1963. Moreover, there weren’t any major tax cuts for the wealthy in the period between 1963 and 1980 in the US, suggesting that the hike in inequality was directly caused by Reagan’s Economic Recovery Act of 1981. Again, the idea of the US government at the time was to make the US working class earn higher incomes as the ‘ trickle-down ’ theory proclaims that the wealth accumulated by the top income bracket will go into hiring people and higher incomes in general. However, evidence shows that inequality has spiked, meaning that there was an increasing gap between the lower-income groups and the wealthiest. Through the 1980s, the reality was that the rich got even wealthier. Looking at empirical evidence, I used Pearson’s correlation 3 to examine the relationship between the US tax rate of the top income bracket, federal corporate tax rate, employment rate, GDP growth (YoY), government spending, and US interest rates. This is the method used to obtain r, the correlation coefficient, in the data gathered below.
Below are my findings after using the data from 1980 – 1992 to create a correlation matrix as well as highlighting some results with a best fit diagram.
Year
Corporate Tax Rate (%)
Top Income Tax Rate (%)
Gini Inde x
Employme nt Rate (%)
GDP Growth, YoY (%)
Government Spending (K, USD Billion)
US Interest Rates (%)
1980
46
70
34.7
60
-0.3
1.84
14
1981
46
70
35.5
59.1
2.5
1.89
18
1982
46
50
36.7
58.2
-1.8
1.94
15
1983
46
50
37.3
57.2
4.6
1.97
8.5
1984
46
50
37.3
58.8
7.2
2.1
9.5
1985
46
50
37.6
59.9
4.2
2.23
8.25
1986
46
50
37.6
60.6
3.5
2.33
7.75
1987
40
38.5
37.2
61
3.5
2.4
6
1988
34
33
37.7
62.2
4.2
2.43
6.88
1989
34
33
38.2
62.9
3.7
2.5
8.75
1990
34
33
38.3
63.2
1.9
2.56
8.25
1991
34
31
38
61.5
-0.1
2.56
7
1992
34
31
38.4
61.3
3.5
2.59
4
Figure 3 – Table of Data Used
3 Pearson’s Correlation in calculating the relationship between variables - https://fhashmi- tech.medium.com/pearsons-r-and-coefficient-of-determination-959bd6d37bb9 .
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